What Is Pay-as-you-drive Insurance?

Question: What is a pay-as-you-drive plan? I only drive 2,000 to 3,000 miles a year. Would this type of insurance program save me money?

Answer: Yes, it's very possible that a pay-as-you drive (PAYD) insurance plan could save you money. Keep in mind, though, besides tracking how many miles you drive, these auto insurance programs also typically monitor your driving behavior before deciding if you'll receive a discount. (See “ Plug in, drive less, save more”)

There are low-mileage discounts available through many car insurance providers, and if you put only 3,000 miles on your car a year you should have no problem qualifying for a discount of between 5 and 15 percent.

To get better discounts (some auto insurance companies tout a discount of up to 50 percent), you'll need to allow the insurance company to track your mileage and monitor your general behavior as a driver.  If your driving patterns show you to be a low-risk driver, you should qualify for a decent discount.

To track your driving style, PAYD insurance programs use either a telematics system already installed in your vehicle, such as OnStar, or the insurer will provide you with a device that plugs into your vehicle.  The plug-in device will report on your mileage, hours of operation, braking and rate of speed.

PAYD plans are not for everyone. If you drive during peak hours, brake hard and/or accelerate quickly, then your discount will likely be rather low -- if one is offered at all.  Many motorists using telematics insurance plans complain that the braking measurement is too sensitive, so one must be incredibly easy with the brakes to obtain a higher discount.

Some insurers have noted that they find drivers are willing to change and improve their driving habits because the information they receive from the telematics device.  If improvement is shown, then the discount can increase for the driver.

If this type of usage-based insurance discount appeals to you, there are several insurance companies offering it.  This currently includes the following insurers and plans:

  • Progressive - Snapshot
  • State Farm - Drive and Save and In-Drive
  • Allstate - Drive Wise
  • Esurance - Drivesense
  • Travelers' - IntelliDrive
  • The Hartford - Truelane
  • Safeco (a subsidiary of Liberty Mutual) - Rewind
  • GMAC Insurance - Low mileage discount

Review our guide to pay-as-you-drive insurance plans for details on the above plans.  You'll notice that the possible discount amount varies by insurance provider and that not all programs are offered in all states yet.

PAYD might be for you, but if not, be aware of other discounts you may quality for (see “ Your guide to car insurance discounts”) and remember the very best way to get the cheapest rates is to comparison shop. 

You may be able to save thousands by simply shopping with several car insurance companies and finding the best overall rates for your particular situation.  (See “ Pocket $1,102 just by shopping around.”)